“Privacy laws have to be rewritten.”
This morning I am heading to the 49th floor of the classy Upper House Hotel, whose Café Gray is popular destination for both hotel guests and for the city’s money class. The full name is “Café Gray Deluxe”, although I don’t feel the reminder is necessary.
Urszula McCormack is right on time. We are early enough to get one of the bistro’s in-demand tables with a 180-degree panorama over the “New York of the East”.
If you deal with digital assets in Hong Kong, you have probably met with McCormack, partner at law firm King & Wood Mallesons, or someone on her team. Even if you have not encountered her in person, you have probably come across the best-practice guides she contributed to this emerging space, either on behalf of the Hong Kong Fintech Association or ASIFMA, the Asian Securities Industry and Financial Markets Association.
For K&WM, the early coverage of digital assets has paid off. “Our digital assets practice has switched from serving startups to mostly institutional,” she says.
Her own career has benefited too, with McCormack recognized by the Financial Times as one of its top-10 legal innovators in 2018. Demand for her blockchain-related legal services is as hot as for the best seats in Café Gray.
“A black coffee please,” she asks.
“Make it two.” I unfolded my precious linen napkin.
Our conversation for a while focuses on ordering breakfast. The menu is ornate. A simple description of an omelet takes the form of a poem. A peek at our neighbor’s table doesn’t help, as we can’t work out what they have ordered. We both find safe harbor in smashed avocado – “avo smash” to my Australian guest – and fresh orange juice.
Her career began in her home country practicing aviation law, but Hong Kong has been McCormack’s home for 12 years. She moved into derivatives before becoming a regulatory pioneer in fintech.
Despite the pressures of being a partner at KW&M, McCormack’s volunteer activity is just as impressive. She is a member of the fintech advisory group to the Securities and Futures Commission, as well as a participant in the Fintech Association, ASIFMA, and Global Digital Finance, an international body for best practices in crypto.
On face value, digital assets seems like dangerous territory for a lawyer.
“Are you worried about smart contracts and jobs in your industry?” I ask.
Of course she is not. The phenomenon of using smart contracts to “cut out the middleman” is no different to the advent of template contracts that proliferate on the internet.
“Lawyers need to understand their role is to frame the risk,” she says.
I’m not letting her off that easily. What about a DAO, short for Decentralized Autonomous Organization?
This is basically an organization represented by rules encoded as computer code, maintained on a blockchain that is transparent and controlled by its shareholders. In other words, a corporation could be structured and governed via blockchain, eliminating much of the work that lawyers provide.
McCormack is quite up to date on these new concepts. She says over time such ideas will gain traction, but not in their current form. In short, it is too early for the decentralized corporation to succeed.
If company structures are not yet ready to go on blockchain, what about money?
Central-bank digital currencies are a hot topic, especially in our region. The People’s Bank of China has announced its intention to issue a digital version of the renminbi. And in our corner of the PRC, the Hong Kong Monetary Authority has unveiled results of an experiment for cross-border digital currency based on distributed-ledger technology, conducted in tandem with the Bank of Thailand.
“The future of money is not binary,” McCormack says. Traditional central-bank cash can coexist with digital assets and even corporate tokens. “The best protection we have against total systemic failure is diversity.”
We were lucky to have grabbed our table with a view. Café Gray is now filling up with hotel guests and businesspeople negotiating over power breakfasts.
It is at this point that McCormack reveals her hobby as a cellist, having taken up performing in string quartets after many years. This is a topic I would enjoy exploring but our chat moves from concert halls to auditoriums. The last time I met her was at a local blockchain meetup in which Vitalik Buterin, the co-founder of Ethereum, made a star appearance.
She jumps on some of the technicalities regarding the Ethereum protocol. We are on the precipice of a deep conversation of digital privacy and zero-knowledge proofs. I need a second coffee if we are to go there. She follows me.
McCormack says we – lawyers, technologists, politicians – are still defining what privacy means in the digital world.
“The topic will be hard-fought,” she says. “Privacy laws have to be rewritten.”
Many countries lack basic privacy laws. Others have laws based on user consent which sounds good in theory but doesn’t work well in practice. McCormack is convinced a shift is happening in which privacy is moving to a data-custody model.
“Privacy by design and default are the direction,” she argues. “The blockchain world is contributing zero-knowledge proofs that enable law while preserving privacy.”
(A zero-knowledge proof is a method by which one party, X, can prove to another, Y, that they know something about a piece of information without conveying knowledge of anything else. The trick is to prove that X knows one thing without revealing, say, personal identifier information, so that Y trusts any related transaction without having to see the actual data.)
This is the sort of statement I usually hear from technologists, not from an established lawyer. What it implies is that the data miners of today – people or entities that buy and own large pools of data – will transition into data custodians with policies governing how they use it. This safekeeping role will enable new business models, be it financial or for other uses.
We reach the point where I need to request a piece of data, otherwise known as the bill. I won’t let her go without asking her view of Hong Kong versus Singapore for regulating digital assets.
“We’ve done side-by-side analysis quite a few times,” she says. “In general they come out the same.”
Like many in our industry, I’ve experienced the benefits of Singapore’s single regulatory structure and active push to develop its fintech industry.
“Singapore is good at signaling,” she says, but will concede no more.
“Do you have a bias?” I ask. We both laugh!
The bill arrives and I am not laughing anymore.
McCormack leaves me with a parting shot. “I’m here for a reason. Hong Kong is messier, chaotic sometimes – which means it has incredible energy.”